GSE poised for second double-digit return

The Ghana Stock Exchange (GSE) is set for a second consecutive positive year in 2024, with the Accra bourse on course to return anything between 15 percent and 25 percent, advisory firm Databank is predicting.

The forecast is predicated upon a much-improved macroeconomic operating environment, that should see healthier performance across the spectrum of companies listed on the exchange.

Last year, the GSE Composite Index (GSE-CI) returned 28.08 percent as investors sought safety in equities, following developments in the debt market.

“With the more favourable macro backdrop, we expect the equity market to continue performing well in 2024 as investors increasingly view equities positively relative to fixed-income securities. We expect the improving Ghanaian economy, easing inflation and a benign outlook for the local currency to positively impact corporate earnings of various sectors in the market, sparking further interest for equities,” Databank said in its Africa Quarterly Report.

“From a technical analysis standpoint, we forecast the GSE-CI index will rise further to close this year at around 3,756 points – translating into an annual gain of 20% (±500bps),” added the report dubbed ‘From Fog to Clearing Skies: Shooting for Sustainable Growth’.

The forecast is also buoyed by expectations that investors will seek to take advantage of the largely undervalued stocks and a recovery of interest in financial stocks.

The market, while historically undervalued, has hovered around a price-to-earnings ratio of 10x. That is, broadly speaking, investors are willing to pay GH¢10 for every GH¢1 of profit. This ratio currently stands at 6x – highlighting the disparity between what investors are willing to pay versus the earning potential of GSE-listed shares.

“This favourable market valuation may allow investors to capitalise on undervalued stocks,” the Databank report added.

Segment outlook

Last year, the market’s performance was driven by non-financial stocks, particularly in the Fast-moving consumer goods (FMCG), oil marketing and telco sectors, as effects of the Domestic Debt Exchange Progamme (DDEP) and consequent restriction on dividend payouts stifled activity in the financial segment.

This year, Databank is projecting a re-rating of banking stocks following successful completion of the debt-swap exercise. Furthermore, the usual suspects are expected to deliver strong performances as cost-cutting measures and a less volatile foreign exchange (FX) terrain bear fruit.

Databank sees banks becoming “better-equipped to absorb shocks” and offering “potentially profitable investment opportunities” in the medium- to long-term.

This is due to factors like recapitalisation, lower impairment provisions and improved efficiency.

Additionally, valuation in the sector remains largely depressed as the sector’s price-to-book value (P/BV) ratio stays below its historical average – with most banks trading at around a 40 percent discount to their book value.

“We believe this offers an attractive opportunity for investors with a medium-to-long-term horizon, as they can buy fundamentally sound bank stocks at heavily discounted prices,” the report pointed out.

In the teleco segment, market leader MTN is expected to maintain its strong performance in 2024. Its dominant market share, consistent financial performance and dividend payouts make it a magnet for investors.

The company’s heavy investments in infrastructure and its recent price increase are seen as positive moves for future growth and profitability.

FMCG companies like Unilever Ghana, Guinness Ghana Breweries and Fan Milk are predicted to benefit from a rebounding economy. With inflation and exchange rates expected to stabilise, these companies can solidify the operational improvements they achieved in 2023.

The oil marketing sector is seen as a defensive play, poised to gain from rising fuel demand and a favourable economic outlook. TotalEnergies, which saw a massive rally in 2023, is expected to make moderate gains while GOIL is predicted to recover from its recent decline. Their stable earnings and consistent dividend yields are likely to attract investors.

In January 2024, the GSE continued its positive run, with the market as a whole returning 1.35 percent. Leading the charge were Guinness, Unilever and Total, which posted impressive returns of 30.6 percent, 9.7 percent and 5.6 percent respectively. Notably, Access Bank’s stock price appreciated by 8.8 percent; driving a 0.45 percent return for the financial segment.

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